Start-ups off the beaten track

Some business sectors are either based in a large city or have no future. Around 90 percent of technology start-ups and established companies work out of either Madrid or Barcelona. It's the same in the United States, where the high-tech firms are concentrated in Silicon Valley in the San Francisco metropolitan area.

However, a growing number of the latest generation of Spanish technology companies are based in small cities. This is the case of cellphone platform CGSoft, which is based in Badajoz in the southwest of the country; IDI Eikon, which sells software to hospitals in Paterna in the province of Valencia; and videogame company Unkasoft, which was set up in Villamayor in Salamanca province. Others include interactive book firm Genera Interactive in Seville; internet sensor specialist Libelium in Zaragoza; financial markets platform provider Qubitia in Pontevedra, Galicia; cyber-security company Optenet in San Sebastián in the Basque Country; gaming firm Teku Studios in Teruel; and voice-recognition company Anboto from Erandio in the Basque province of Bizkaia.

Some of them already sell more overseas than they do in Spain. Libelium exports around 90 percent of its output, the majority of Qubitia's 15 customers are foreign and 60 percent of Genera's 20 million downloads of electronic books for children are located outside of Spain, with Disney one of its major customers. Around 90 percent of Optenet's sales are overseas. The company also has a base in the United States, offices in 13 countries, and research and development centers in Spain and Mexico.

This trend is not totally new. In their day a number of now highly respected Spanish hi-tech firms such as Panda Internet Security and e-commerce firm Barrabés started up respectively in Bilbao and a village in the middle of nowhere in the southwestern province of Huelva. Panoramio, the Spanish electronic image firm acquired by Google, was set up in a small village in the southeast province of Murcia.

However, the trend is now gathering pace because of a series of factors, one of which is the big increase in the number of computer and telecommunications engineers graduating from dozens of universities across Spain. These are young and have become increasingly better trained people as the number of technical and research faculties set up in many provincial capitals has shot up over the past two decades. Some of these universities are looking to take advantage of the technology developed by teams by launching spinoffs.

"But, here it was only the Polytechnic University that did this," says Alejandro Echeverria, business developer at IDI Eikon. "But in the past year the University of Valencia has started up a project for technology entrepreneurs."

It's not just the universities. Despite the crisis, a number of technological entrepreneurship programs are on the go at the regional and municipal levels. Nurseries for companies, subsidized technological centers and seed-capital funds are now the norm in cities with populations of between 50,000 and 100,000 backed by local administrations, savings banks, institutions and local businesses. "There has been a dramatic change," says Luis Taboada, a partner in Qubitia, which has produced a highly sophisticated trading platform for financial markets. "A few years ago, there was hardly any support of this nature."

The creation of technological centers has been a key development. Technological entrepreneurship clusters have been formed by grouping together dozens of small start-ups in the same place. Rubén Montero of CGSoft explains that these centers not only work out cheaper, they also open up opportunities. "The fact that there are around 40 companies concentrated in the one place has encouraged us to cooperate with some of them and make joint offers. We see each other, we meet up and from there business ideas emerge."

With the help of Spanish telecoms giant Telefónica, CGSoft has created XOne, one of the leading cellphone platforms in Europe that allows all the operations possible on an office computer to be carried out on any mobile device.

Networking is also easier in smaller cities. "As Valencia is a small city, it is easier to make contact either to design projects, meet up with the local administration or sell," explains IDI Eikon's Echeverria. Miguel Vallés of Teku Studios says being based in Teruel has provided a number of advantages. "Given that there are few companies such as ours, it has been easy to finance ourselves through prizes and subsidies as there is not a lot of competition."

Rampant unemployment and the desire to remain in one's home town where the demand for qualified labor is scant have also led a number of young professionals to start up their own businesses. Also, costs such as rents, transport and salaries are lower. Wages are lower because the cost of living is lower. "For us it's good since here in Pontevedra there aren't a great deal of opportunities for professionals such as ourselves, it reduces the brain drain," says Qubitia's Taboada.

Would these companies work better in a big city? The answers vary. If the nature of the business requires constant contact with customers, the logic of staying in a small place loses weight. In such cases, a number of companies have decided to move their headquarters or commercial centers to Madrid. In other cases, some have opted to set up an office there. Others went to the extreme of opening up in Silicon Valley itself. One of the other disadvantages of operating out of a small city is prejudice. "Even though we are a multinational, at times in Spain people think it strange we are from Badajoz, as if we wouldn't be capable of doing something innovative," CGSoft's Montero says.